Bethesda, Md.Squeezed
by a recession and rising Medicaid costs, states are cutting spending and considering
tax increases but are sparing their Medicaid and children's health insurance
programs, according to a new article published on the Health Affairs
Web site (www.healthaffairs.org).

An analysis of 13 states
that have been part of the Urban Institute's Assessing the New Federalism project
found that states, in general, have not reduced eligibility in response to budget
pressures. Those pressures include declining tax revenue; increasing enrollment
because of expanded eligibility, new outreach, and higher unemployment; and
increasing costs because of higher provider payments, drug prices, and lower
savings from managed care. The analysis says that significant cuts are unlikely,
however, because of federal matching payments, minimum federal standards, and
the political strength of providers and beneficiaries.

Many states expanded Medicaid
benefits and eligibility and added new health insurance programs for the uninsured
during the 1990s when revenue was booming, medical inflation was low, and new
program dollars were flowing from Washington. This picture began to change in
2000. Although they were not advocating cuts in enrollment, several states were
cutting or freezing reimbursement to providers, eliminating some optional benefits,
and limiting their outreach efforts to increase enrollment. If the recession
deepens or lasts longer than now expected, this could change, said the report
authored by John Holahan, Joshua Wiener, and Amy Lutzky.

The authors warn that the
problems that state health policy faces will not fade when the recession ends.
Between rising health care costs and slow economic growth, employer coverage
could decline and the number of uninsured increase. Medicaid managed care is
no longer saving as much money as it did in the 1990s. Hospital, nursing home,
and drug costs are likely to continue increasing. And the federal government
is determined to curtail use of the questionable financing arrangements that
states have engaged in. States will have difficulty maintaining current coverage
commitments and will have an even harder time expanding coverage.

States covered by the report
are Alabama, California, Colorado, Florida, Massachusetts, Michigan, Minnesota,
Mississippi, New Jersey, New York, Texas, Washington and Wisconsin.

For interviews with the
authors, please contact the Urban Institute Public Affairs Office at (202) 261-5709,
or paffairs@ui.urban.org.

Health Affairs, published
by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing
the leading edge in health policy thought and research.